Pacific Northwest–Pacific Southwest Intertie Project Fiscal Year 2021 Rate Meeting May 28, 2020 Webex
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Meeting Agenda • Purpose • Rate Setting Methodology • Rate History • Determinants • Rates • Combined Transmission Rate • Multi-Year Outlook • Next Steps • Additional Resources 3
Purpose • Rates expire September 30, 2020 • WAPA will propose extending the existing Intertie rates through September 30, 2023 • Provide ratemaking data and explain the need for an extension rather than the slight rate reduction that was previously forecast • Opportunity for discussion and questions 4
Rate Setting Methodology • Intertie is treated as a stand-alone project for rate setting and repayment purposes • For all Federal projects, interest is paid annually while principal is due at the end of the service life of assets or 50 years for additions • Intertie uses a pinch-point methodology • Progress payments are made toward large required payments which are known as pinch-points • Payments are shaped around annual expenses to produce a level rate for a 50-year period • The rate is tested annually to ensure it is still adequate to recover costs and adjusted if necessary 5
Rate Setting Methodology • This methodology offers several benefits: • Minimizes principal and interest costs • Considers due dates and interest rates • Less volatile rates • A lengthy 50-year period • Predictable pinch-points rather than fluctuating annual costs • Deficits • When necessary, deficits can be incurred if revenue is insufficient • Deficits are capitalized and are repaid with interest within 10 years and typically prior to other investments 6
Rate History Rate Order No. WAPA-157 • Effective May 2013 • Firm Transmission: $19.32/kW-Year • A single rate was established for both 230/345-kV and 500-kV transmission lines • The rate was sufficient to cover the repayment of deficits and the original project investment in fiscal year (FY) 2020 7
Rate History Options Group Meetings • A collaborative workgroup consisting of WAPA and its customers that formed after the 2013 rate adjustment • Evaluated the financial position of the Intertie and explored ideas to produce long-term rate stability • Analysis showed the Intertie rates would likely decrease slightly and then increase prior to the FY 2020 pinch- point • WAPA committed to maintaining the rates then in effect through FY 2020, even at the risk of a deficit 8
Rate History Rate Order No. WAPA-181 • Effective October 2018 • With deficits repaid, progress toward the repayment of the FY 2020 pinch-point was continuing • Indications of possible declining firm sales but the existing rate was still sufficient • Rates were also extended to evaluate combining transmissions rates within the Desert Southwest Region (DSW) 9
Determinants Typical Costs Other Purchase Power 3% & Wheeling 15% P&I 50% O&M 32% 10
Determinants • O&M expenses are based on the information presented at the 2019 Work Plan meeting • Ten-Year Plan information is used to project capital costs in the near-term • The Power Repayment Study calculates long-term capital costs based on service lives of existing equipment • Transmission reservation projections are based on contractual values, adjusted for known and measurables 11
Projected FY 2020 Deficit • FY 2020 will likely result in a deficit of $2.5m • Due to greater reductions in firm sales and increases in purchase power than previously expected • These changes decreased the amount of repayment toward the FY 2020 pinch-point resulting in a temporary shortfall • The deficit will be repaid in FY 2021 prior to making progress toward the FY 2023 pinch-point 12
Reservation Changes FY 2020 FY 2021 FY 2022 FY 2023 Total Reservations (kW) 1,396,756 1,584,256 1,646,756 1,562,756 NextEra + 187,500 + 250,000 + 250,000 AEPCO + 50,000 WAPA – CRSP Region - 134,000 • NextEra is contingent on the completion of a new generation plant • Arizona Electric Power Cooperative is expected to reserve an additional 50,000 kW • WAPA - CRSP renewal is uncertain 13
Reservations 1,800 MW 1,700 MW 1,600 MW 1,500 MW 1,400 MW 1,300 MW 1,200 MW 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Existing New 14
Purchase Power and Wheeling The recent historic average for purchase power and wheeling is approximately $3.6m Actual Fiscal Year Amount 2017 $2.0m 2018 $6.0m 2019 $2.7m Forecast 2020+ $3.6m 15
Other Revenue Other revenue increased significantly in FY 2017 and FY 2018 Actual Fiscal Year Amount 2017 $7.3m 2018 $11.3m 2019 $13.5m Forecast 2020+ $9.6m 16
Principal Payments $33 M $30 M $27 M $24 M $21 M $18 M $15 M $12 M $9 M $6 M $3 M $0 M 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 Required Scheduled 17
Rates FY 2021 FY 2022 FY 2023 O&M $11.1m $10.7m $11.0m Other Costs $0.7m $0.7m $0.7m Purchase Power and Wheeling $3.6m $3.6m $3.6m Principal and Interest $24.7m $26.3m $24.5m Other Revenue $(9.6m) $(9.6m) $(9.6m) Total/Revenue Requirement $30.6m $31.8m $30.2m Reservations (kW) 1,584,256 1,646,756 1,562,756 Rate ($/kW-Year) $19.32 $19.32 $19.32 18
Summary • WAPA will propose extending the existing Intertie rates through September 30, 2023 • Primary determinants of the rate calculation: • Deficit in FY 2020 • Increased reservations • Purchase Power • Other Revenue • Principal payments • The existing rates will collect sufficient revenue to meet repayment obligations 19
Combined Transmission Rate • WAPA is investigating combining the transmission rates of the DSW and Colorado River Storage Project transmission systems • An initial customer outreach meeting was held in April • Several meetings will be held in the fall to explore the concept with WAPA’s customers • A few potential benefits include more efficient use of transmission system, eliminating rate pancaking, and reducing administrative costs https://www.wapa.gov/regions/DSW/Rates/Pages/CombinedTransR ate.aspx 20
Multi-Year Outlook 2021 2022 2023 2024 2025 2026 2027 2028 O&M $11.1m $10.7m $11.0m $11.2m $11.2m $11.4m $11.6m $11.9m Other Costs $0.7m $0.7m $0.7m $0.7m $0.7m $0.7m $0.7m $0.7m PPW $3.6m $3.6m $3.6m $3.6m $3.6m $3.6m $3.6m $3.6m P&I $24.7m $26.3m $24.5m $20.7m $20.7m $20.5m $20.3m $20.0m Other Revenue $(9.6m) $(9.6m) $(9.6m) $(9.6m) $(9.6m) $(9.6m) $(9.6m) $(9.6m) Total/Rev. Req. $30.6m $31.8m $30.2m $26.6m $26.6m $26.6m $26.6m $26.6m Reservations (MW) 1,584 1,647 1,563 1,563 1,563 1,563 1,563 1,563 Rate ($/kW-Year) $19.32 $19.32 $19.32 $16.99 $16.99 $16.99 $16.99 $16.99 21
Next Steps Public process begins when a notice is published in the June 2020 Federal Register . Comments will be accepted any time during the 30-day comment and consultation period. July 2020 Public process concludes August 2020 Final rate order is published in the Federal Register October 1, 2020 Effective date of rate 22
Additional Resources Kevin Schaefer Tina Ramsey Public Utilities Specialist Rates Manager (602) 605-2867 (602) 605-2565 kschaefer@wapa.gov ramsey@wapa.gov For further information, visit WAPA’s website at https://www.wapa.gov/regions/DSW/Rates/Pages/intertie-rates.aspx 23
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